For which type of organization is unlimited liability likely to be the greater problem - proprietorship or partnership? Why?

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larrygates's profile pic

larrygates | College Teacher | (Level 1) Educator Emeritus

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The above answer is only partially correct. In each instance, the danger of unlimited liability is there. The sole proprietor is responsible for all debts, torts, or other liabilities which he may incur. Partnerships may have greater assets and larger operations, however the act of one partner will create liability for the other partner as well. Example: A and B are practicing attorneys who operate under the name of AB Partnership. Although A has a clean record and has done nothing to create liability, B has neglected a matter which has created serious liability for him. Since both A and B are members of the partnership, A is equally liable for B's misfeasance. The more members there are of a partnership, the greater the likelihood that one will incur liability. Since one might therefore be liable for acts which he did not commit, an argument might be made that unlimited liability is a greater responsibility for partnerships than for sole proprietors. As a sole proprietor, one at least has the comfort of knowing that any liability will be as a result of his own acts, not those of another.

pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

Unlimited liability is definitely a problem for both of these types of ownership.  In both cases, the owners are liable for all debts incurred by the company.  As far as which is worse, it is difficult to know.  In theory, you might say that a proprietorship is worse because the proprietor is solely responsible for all of the liabilities.  In a partnership, all of the partners would share in the liability.  Of course, it is possible that a partnership might have larger operations and incur larger debts.  If we have to pick one or another, we can say that proprietorships have a greater problem because there is no partner with whom to share the liabilities.

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